Officials mull boosting incentives to keep $1.3 billion fertilizer plant project in Iowa
The richest business attraction incentives package in recent Iowa history will likely get richer.
Iowa economic development leaders today will consider boosting tax credits for a proposed fertilizer plant to $100 million over four years to attract the $1.3 billion project to southeast Iowa, said Debi Durham, the state’s economic development director.
Durham said the added tax credits are needed to keep the project from being lured to Illinois, which has aggressively recruited Egypt-based Orascom Construction Industries to locate the project there.
Orascom has attracted a diverse group of opponents, from parents, environmentalists and liberal groups such as Iowa Citizens for Community Improvement and Iowa Policy Project, to conservative groups such as Public Interest Group, Lee County Tea Party and Americans for Tax Reform.
Grover Norquist, the influential leader of Americans for Tax Reform, wrote a letter to Gov. Terry Branstad in July urging him to oppose use of taxpayer dollars toward the project.
“Iowans have already witnessed the negative effects and the cost of handling taxpayer-backed loans to private enterprise, most notably the Solyndra scandal,” Norquist wrote. The California solar company went bankrupt and owes the federal government more than $500 million.
The Iowa Economic Development Authority Board agreed in February to provide nearly $35 million in incentives to Orascom to build the $1.3 billion fertilizer plant in Lee County.
The incentives package included $24 million in tax credits. The total incentives package would grow to about $110 million with the increased tax credits, based on capital investment.
The board, in a special meeting this afternoon, will consider providing another $26 million in tax credits to Orascom’s Iowa Fertilizer Co. Future boards will be asked over the next two years to provide $25 million annually, Durham said. The project would create 165 permanent jobs, paying about $48,000 annually, and several hundred construction jobs.
The cost per job would be about $600,000.
“That’s a huge investment for a small number of jobs in one place. It’s several times even the most generous packages,” said Peter Fisher, research director of Iowa Policy Project, a nonprofit research group in Iowa City. “At some point, we have to ask, ‘What is the limit? Is there a limit on what we will pay for a good job?’ ”
In addition to tax credits, the economic development incentives include a $1.6 million loan and forgivable loan, and $1.7 million for worker training. The company also can tap a low-cost disaster bond program through the state to get private financing for the project.
Deborah Thornton, a research analyst at the Mount Pleasant Public Interest Institute, which seeks to limit government, wrote a paper questioning, among other issues, whether Orascom is investing enough in the property.
The company is providing $100 million in cash to the project and getting a low-cost loan through the state to finance the remainder. “Orascom is taking every advantage of every economic-development incentive they can wrangle out of the state and local governments,” Thornton said.
Orascom has run into several hurdles since announcing in February it planned to build the plant in Lee County. Flooding concerns emerged over the initial site, prompting the company to look at a nearly 320-acre site in Scott County, where environmental and safety concerns emerged.
Orascom last week postponed a Scott County public hearing on rezoning farmland for the project. Rich Clewell, a Davenport school board member, said many residents had problems with the proposed project site — prime farmland and within a couple miles of a school.
“There was a lot of concern about the safety of the kids, given a catastrophic event,” he said. “But there were also environmental concerns” that included water usage and runoff.
“The land is our legacy,” said Clewell, a retired wildlife biologist.
Durham said the new plan would keep the project in Lee County, although it would be located in a different site than the floodplain originally identified. Details about the new site were not immediately available.
Orascom also was considering a site in an industrial park in Illinois. Senators in May approved giving Illinois projects with more than $1 billion in capital investment-added incentives. The bill would provide about $150 million in tax credits over a decade for Orascom, said the bill’s author, Sen. David Koehler, a Democrat. He expects to get the House to approve the legislation this fall.
Koehler said he hoped growing opposition in Iowa — plus Illinois’ sweetened incentives — would bring the project and its jobs across the Mississippi River. “My job is to help create jobs,” he said Tuesday.
Orascom also would save an estimated $360 million by borrowing $1.2 billion through the disaster bond program. The program is designed to help companies rebuild from the 2008 floods and tornadoes. It also can be used to replace companies and jobs lost in the disasters.
Fisher said those savings aren’t even factored into the state package. “Why do they need to double down with additional state incentives?” he asked.
Durham said the state would need fewer incentives if lawmakers would push forward reforms that reduce corporate income tax rates for businesses. Branstad also has sought to reduce property taxes for corporations and residents.
“The bigger issue is that we’re not competitive,” Durham said. “Until we deal with the root cause, our own uncompetitive income structure, we have to do these deals. … We have to create a level playing field for all companies, both new and existing.”
Despite the largest incentives package in recent history, Durham said the project is good for Iowa, both in creating jobs and in creating nitrogen that farmers use as fertilizer.
About 50 percent of nitrogen products are imported to the United States, she said.
“We wouldn’t be making this deal if we didn’t think it was good for Iowa,” said Durham, who added that she and Branstad met with Orascom CEO Nassef Sawiris to discuss what it would take to keep the project in Iowa.
“This is the single largest capital investment project Iowa has ever seen. The economic ripple for this is huge. For us to lose this would be irresponsible,” especially for Lee County, which struggles with high joblessness, Durham said. The project’s capital investment is expected to inch up to $1.4 billion, she said.
Lee County supervisors are expected to consider providing local incentives today as well.
Iowa Fertilizer Co.
ABOUT: The newly created company is owned by Orascom Construction Industry, a publicly traded global Egyptian company. The plant will produce nitrogen fertilizer and other products that are sold to farmers in Iowa, Illinois and Wisconsin.
INVESTMENT: The project cost is expected to climb to more than $1.4 billion. In comparison, Google built an $800 million data farm in Council Bluffs in 2008.
JOBS CREATED: 165 permanent jobs, most of which would pay about $48,000 annually.
INCENTIVES: $805,000 loan; $805,000 forgivable loan; $1.7 million in job training; a proposed $100 million in tax credits based on capital investment; $7.4 million in refund of sales tax used on racks, shelving and other equipment used in construction; and $60,000 in supplemental research and development. The company also would see savings by financing its loan through the Midwest disaster bond program. It provides a lower interest rate for private financing. Local incentives are expected from Lee County. The state transportation board also agreed to provide $2 million for infrastructure improvements for the project.
CONCERNS: Residents’ concerns range from the amount of incentives used in the project to environmental concerns about nitrogen production.